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Are Tips Going Up?

Cashless payment tools can be super convenient, but these quicker checkout options may cause you to tip more than you'd like.
Published
Tips jar on a cafe counter

Figuring out when and how much to tip can be stressful. With the proliferation of cashless payment options like Square and in-app tipping, it's easier than ever to leave a tip without worrying if you have enough cash, and to simply push a suggested preset tip amount.

SEE ALSO: How Much Should You Tip?

But is technology nudging us into tipping more? While some call it "tip creep" or "guilt tipping," the suggested amounts for tips have indeed gone up, and the number of situations prompting us to tip have increased. For example, while the old suggested restaurant tip hovered around 15%, the median is now about 18%. This is probably in part because apps like Square cause people to tip in situations they might not have previously.

Let's explore the ways tech is changing how — and how much — we tip, and the role psychology plays in the tipping process.

Avoiding the 'Pain of Paying'

"Everyone is moving away from cash to credit cards," says David Scott Peters, founder of TheRestaurantExpert.com. "People tend to tip — and spend — more when they use credit cards."

Spending goes up when consumers aren't faced with the physical act of parting with their money.

The psychological term for feeling the lightening of your wallet is the "pain of paying," and research shows that spending increases when consumers aren't faced with the physical act of parting with their money. "You don't feel the money leaving your hand," Peters says. "They're not feeling it today. It's just a number on a piece of paper." (Or a button in an app, as the case may be.) People are more likely to round up, and instead of the old minimum of 15%, "you find your way closer to 20%," Peters says.

The Power of Suggestion

Until 2007, New York City taxis only had to take cash, and some drivers were initially reluctant to accept cards. Two years later, drivers felt differently with an extra $144 million in annual tips, which had increased from an average of 10% to 22%. With the credit card payments, riders were opting for default tip options of 20%, 25%, and 30%. (Incidentally, the 1947 guideline for tipping cab drivers was about 12%.)

More recently, Lyft drivers saw an increase in tips on rides over $25. That happened after the ride-hailing app increased its tipping prompts within the app to $2, $5, and $10, instead of the $1, $2, and $5 suggested tips for rides under $25.

SEE ALSO: 10 Sneaky Ways Retailers Fool You Into Spending More

And Lyft hasn't stopped there. It redesigned its app's tipping screen, and the June 2018 update resulted in a 20% increase in tip amounts, according to the company. Now Lyft is adding a preset tipping function. This default option allows riders to choose a tip percentage to automatically apply to rides, during times when riders don't actively rate a trip and add a tip.

When tipping is as simple as "hitting a button," Peters says, people often opt for the ease of a suggested amount. As with taxis and ride-hailing services, the suggested amount has also shifted upwards in restaurants. According to Nation's Restaurant News, suggested gratuity amounts even on the bottom of printed checks have increased from 15% to 18% at a growing number of restaurants.

Another factor also is responsible for the tip shift: There's an anchoring effect with suggested amounts, notes Nir Eyal, author of Hooked: How to Build Habit-Forming Products. When presented with three options, people tend to choose a middle option — instead of the lowest suggestion — to avoid feeling stingy.

'No Tip' Means More Pressure

Businesses that use Square for digital payments can create custom amounts or choose from Square tip defaults to display on a separate screen, or on the same screen as the customer signature. The default tipping options are in dollar amounts of $1, $2, or $3, or in percentages of 15%, 20%, or 25% — both with a "no tip" button, as well. This button has a significant impact on the way people tip.

Some customers are more likely to tip when they use cashless payment tools like Square. Why? Because they are less likely to press a 'no tip' button.

According to a Software Advice survey, 29% of respondents said they would be more likely to leave a tip if they had to press a "no tip" button to opt out of tipping. "It's one thing to bypass a tip jar or just leave the gratuity line blank when you're signing a check, but it's harder to physically press a button saying you aren't going to leave anything," a Square blog post notes.

The "no tip" option creates a social pressure to tip — in fact, one expert jokingly referred to it as the "Costanza effect." However, it's been noted that businesses that use Square sometimes aren't the usual places where one would leave a gratuity. You could get a tip request when buying Girl Scout Cookies, for example. Some argue they feel pressure to tip more than they usually would at a coffee shop or counter-service ice cream shops and bakeries.

Proximity Matters

In the survey conducted by Software Advice, 41% of respondents said close proximity to a server or cashier when entering a tip amount would "probably" or "definitely" increase the likelihood of tipping. Another aspect of the "no tip" button is that you're pressing it in view of the cashier, who has swiveled the screen toward you at the register.

SEE ALSO: This Bad Food Habit Could Be Costing You $1,800 a Year

The Software Advice report also notes that in the case of sit-down restaurants, when iPads are used, the server usually stays with the device until the check has been paid, instead of leaving the paper bill and walking away. Diners might end up tipping more with the server nearby.

Higher Tech, Higher Tips

Square recently released data from a study on how mobile payments affect tips. While 67% of buyers tipped when their card was swiped, 71% tipped when they dipped an EMV chip card, and 73% tipped when making a tap mobile wallet payment.

Ease and Speed Have an Impact

While Square's data doesn't elaborate on why mobile taps increase tipping, the shift for many service-oriented payments is about "convenience and speed," Peters says. In Square's post about increasing tips, one suggested method is to take orders and accept payment while customers are in line to speed up the process. Ease and speed often lead to higher tips.

Time for Change?

It's been an eventful time for tipping policies, particularly in the restaurant industry, according to a 2017 roundup by Eater. While restaurateurs like Danny Meyer have eliminated tips entirely and opted for service-included bills, many restaurants that had experimented with eliminating tips returned to the practice. In the restaurant industry, tipped employees rely on those tips for most of their income. Depending on state law, some servers make as little as $2.13 per hour, while other states require that workers get paid additional wages or minimum wages.

Depending on state law, some restaurant servers make as little as $2.13 per hour.

Some would rather err on the side of tipping instead of agonizing over the gratuity. Eyal sees both benefits and drawbacks of the digitalization of tips. On one hand, he notes, transactions are easier and faster, and bad or non-tippers get a nudge in the direction of tipping those in the service industry. "However, for the average person just trying to do the right thing, these devices can mean hundreds if not thousands of dollars spent unintentionally," Eyal writes.

Still, Michael Lynn, a Cornell University professor who has spent decades researching tipping, maintains that being able to add a tip to a restaurant bill actually enhances consumer satisfaction.

Readers, what do you think of "tip creep"? Should 18% be the new tipping minimum for most services? Let us know in the comments below!


Contributing Writer

Josie Rubio is a Brooklyn, New York-based freelance editor and writer. She has visited five continents so far and loves to write about travel, food, nutrition, health... and pretty much everything. Follow her on Twitter at @JosieRubio.
DealNews may be compensated by companies mentioned in this article. Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).
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8 comments
wiwanski
Tipping is OUT OF CONTROL in USA. It's nearly non existent in rest of the world, some places like Korea and Japan it is actively discouraged.
harpervalley300
@tjcour

Servers only put up with low wages because they are being subsidized by the tipping. If the tipping stops servers will simply not be able to afford to live on the weak wages of the business, and will be forced to look elsewhere for work. The business will have to raise base wages or they will soon find themselves unable to find staff - that's how the market works.

Sonic Drive-ins used to pay their car hops "server" wages. Then they installed card readers at their ordering boards so people could pay with plastic easily. Their POS system does not give you a way to add a tip to the charge. Their car hops' tips fell dramatically -- no one was going to bring cash just for a tip. Ta-da -- car hops now get a more normal "fast-food worker" wage.
sc122002
However, the "proximity" bit is true. I've worked at places where people think that if they don't pay with the server, and go up front to the cashier, they don't have to leave a tip. It eases their conscience of stiffing the server.

With the suggested gratuity blurbs on the receipts, people tend to aim for the lowest, because they think as long as they've picked at least one of the suggested grats, they've done a good job. We live in a society of mediocrity and as long as they've done the bare minimum, then thumbs up!

I learned recently that food delivery services get tipped when the order is made, which baffles me. I am not a big proponent of tipping prior to receiving food/service. In some cases, I can see how that'd motivate to do well since being tipped generously, but at the same time, I see it mostly backfiring.

For those of you concerned about credit card tips- servers get all of it. Small hole in the walls are likely to be shady with tips vs large corporate chains.
sc122002
MORE tipping? I call bs.

People are living beyond their means, and as long as they can get the social media fame when they brag about where they are, that's all that matters. It's a pretty concerning trend to see. "Keeping up with the Jonses" has been a trend for decades, but even more so now, and even more concerning considering the average household debt as sky rocketed, and the Millennial generation racking up college debt. It's like WHERE are they getting this money? (credit).

So my irritation not only lies with the crappy tipping habits that I see, but the bigger picture behind it. "I actually can't afford this" vs "I"m just being cheap." (which is also a bit of the latter, but more the former)

That said, this article makes me wonder the validity of these linked "studies" which seem to be based on that company's own POS system, which is only used in some establishments. I don't think these findings reflect the overall industry.
tjcour
jb_mn...

Tips may not have been meant to subsidize low wages originally, but that's what they have evolved to today. When you stiff someone on a tip you are directly hurting that person's ability to make a decent wage. You don't have to like it, but that's what happens. Tip your servers every time. Do your protesting in a way that doesn't hurt the servers, but instead support businesses that discourage tipping or speak out for raising the minimum wage for servers.. things that might actually lead to change and moving away from tipping as it is today.
tjcour
Tipping should go away! Business owners should pay their employees a fair wage and charge their customers a fair price for their products instead of artificially keeping prices low and relying on their customers to pay wages to their employees for them.

(I do understand that I live in the real world so I do tip today when appropriate, but ideally the whole practice should be eliminated or severely reduced so that people do not depend on it for their base income.)
jb_mn
I don't trust the business owners to get the tip to the servers so I always tip cash if I pay with a CC. Like @jalx I tip based on service not based on a chart or a predetermined amount set by management and added to my bill. I refuse to eat at restaurant where the owner or management has added an automatic tip in the bill. Also if you're a server that thinks you're entitled to a tip--think again!
Tips were never meant to subsidize a workers low wages--that's the responsibility of the owner of the establishment. TIPS=To ensure prompt service.
jalx
I believe that the tip amount should reflect satisfaction with the server, not how for they are from me when I fill in the total. If the service was great I aim for 25%, if it was not good I'll stick to 15%, usually I tip around 20% which is very easy for mental arithmetic. I prefer to give cash tips, because when the tip is included in the card payment I never know how much of the tip the server actually receives. Some businesses share the tips. And credit card processors always skim a significant percentage of the total, so I would not be surprised if businesses shave off at least that much from card tips that employees receive. Credit card transactions are very convenient for many of us, but unless you are as large as Walmart so you can negotiate a significantly lower rate, the banks and card processors claim a big chunk of these transactions.